Dreams, psychic drawings, and interviewing a log are all useful techniques on Agent Cooper's hunt for the killer.
This episode is titled "Cooper's Dreams", which is ironic, since Cooper's dreams are interrupted as the episode opens just before 4:30 in the morning. What stirs him isn't a knife-wielding maniac or a vision or a shockingly young woman making a pass at him (that happens later): Cooper is awakened by a group of Icelandic businessmen singing at the top of their lungs. He is downright grumpy up until he has his second cup of coffee and a doughnut a few scenes later on.
Before leaving the Great Northern Hotel, Ben Horne is shown dealing with his morning. His brother, Jerry, comes bounding in while giving his good wishes to the singing Icelanders. You know that he was in the thick of the late night singing session, because he's exactly that kind of guy. For example, he's holding a leg of lamb like a baby during the entire scene. Jerry Horne is fun-loving, but a bit weird even by Twin Peaks standards which is quite an accomplishment.
The brothers Horne have invited the group from Iceland into their hotel to entice them into investing in Ghostwood, a country club real estate development project (or something). But as they are discussing their plans, Leland Palmer walks into the room. Leland is Ben's lawyer, and was always involved in real estate ventures before, but since the death of his daughter, Leland has endured a very poignant nervous breakdown. The last episode ended with him collapsing into an emotional wreck in the middle of a dance floor. His daughter, Laura, had always danced with him before, and now she was gone forever. Leland has gone back to work as a way to get his mind off of his daughter, but he's clearly not ready for it yet.
Agent Cooper arrives at Jacques Renault's apartment, and the first thing he does is ask for coffee and doughnuts. Immediately after taking his first bite of pastry, Cooper is boosted out of his morning funk by the discovery of more clues concerning the whereabouts of Laura Palmer on the night of her murder. They find a magazine called "Flesh World" which has appeared in various scenes of interest so far, and they find out that Jacque owned a cabin with red drapes (like in Cooper's dream), which is a good, solid, intuition-inspired lead.
But by this point in the series, Laura Palmer's murder is not the only currently unfolding event that viewers have tuned in to see.
The action moves on to the always-under-construction Johnson household next. Leo Johnson (who is a strong suspect, and an obvious bad guy in the ensemble cast) is out trucking, or drug trafficking, or planning the arson of the Packard Mill which will take place in the next few days. Where Leo is at the moment doesn't matter, because Shelly (his wife) and Bobby (her secret boyfriend, who was also dating Laura when she was murdered) are having breakfast. They banter back and forth about their plan to take care of Leo (by setting the cops on his trail).
This would be a great time to talk about gun safety. Why? Because right before the ten minute mark in the episode, Bobby Briggs demonstrates just how much he should not be allowed to handle a gun. He waves it around like a toy, pointing it at Shelly's chest several times while having a pretend conversation with her husband, and holding his finger on the trigger the entire time. This is about the most idiotic and naïve display of gun etiquette I have ever seen on screen. Most times, when someone holds a gun on TV, they know how to use it. Every single thing about the way Bobby handles that gun demonstrates that he has no idea how to use it and is in over his head.